BUS187 q.8

Why has FDI grown more rapidly than world trade?

Executives of business firms see FDI as a way of circumventing future trade barriers.

_____ involves producing goods at home and then shipping them to the receiving country for sale.

Exporting

Which of the following statements is most likely to be true regarding the adverse effects of FDI on the host country?

When a foreign subsidiary imports a substantial number of its inputs from abroad, it results in a debit on the current account of the host country's balance of payments.

People with radical view toward FDI argue that _____ is an instrument of imperialist domination.

a multinational enterprise

QFresh, a brand for energy drinks launched a healthy lime based drink without preservatives. Immediately after this another brand, Fast Fizz, which manufactures energy drinks, also announced the launch of a new refreshing drink without preservatives. Then Ignite, a third brand of energy drinks, reduced the price of its apple based drink. Which of the following is most likely to happen in this oligopolistic market set up?

QFresh and Fast Fizz will reduce the prices of their respective drinks.

Which of the following is the only way in which a current account deficit can be supported in the long run?

Selling assets to foreigners

The stock of foreign direct investment refers to:

the total accumulated value of foreign-owned assets at a given time.

A firm will favor FDI over exporting as an entry strategy when:

the transportation costs or trade barriers are high.

Countries such as the U.S., the U.K., France, Germany, the Netherlands, and Japan dominate in the share of total global stock of FDI and FDI outflows and in rankings of the world's largest multinationals because:

they were the most developed countries postwar and home to the largest and best capitalized enterprises.

Offshore production refers to FDI undertaken:

to serve the home market.

A current account deficit is also known as a(n) _____ deficit.

trade

Location-specific advantages for a firm are those that arise from:

utilizing resource assets that are tied to a particular foreign location and valuable enough to be combined with the firm's own unique assets.

Which of the following statements regarding the free market view is true?

No country has adopted the free market view in its pure form.

The cement market in Erbia is dominated by four firms. These firms control 85 percent of selling and buying of the domestic market. Which of the following terms explains the market structure of cement industry in Erbia?

Oligopoly

According to internalization theory, one of the drawbacks of licensing is that:

it does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability.

The idea behind multipoint competition is to ensure that:

a rival does not dominate one market and use the profits from there to drive competitive attacks elsewhere.

Indirect effects of FDI on employment in a host country arise when:

jobs are created because of increased local spending by employees of an MNE.

The difference between Internalization theory and imitative theory is that:

internalization theory addresses the issue of efficiency of FDI over exporting or licensing.

Although it normally involves much longer-term commitments, franchising is essentially the service industry version of:

licensing.

According to the _____, FDI has both benefits and costs and should be allowed only if the benefits outweigh the costs.

pragmatic nationalist view

Which of the following statements is most likely to be true regarding the effects of FDI on employment?

A beneficial employment effect claimed for FDI is that it brings jobs to a host country that would otherwise not be created there.

_____ accounts are national accounts that track both payments to and receipts from other countries.

Balance-of-payments

A(n) _____ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries.

Dunning argues that it makes sense for a firm to locate production facilities in those countries where the cost and skills of local labor is most suited to its particular production processes, since labor is not internationally mobile.

The _____ view of FDI traces its roots to Marxist political and economic theory.

radical

Historically, most FDI has been directed at the _____ nations of the world.

developed

Which of the following is most likely to involve establishment of a new operation in a foreign country?

Greenfield investment

Which of the following involves granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit sold?

Licensing

Which of the following is a home-country policy for limiting outward FDI?

Manipulating tax rules to encourage the firms to invest at home

Which of the following indicates that a firm has full outright stake in an acquisition?

Maximus Corporations acquires 100 percent of a company.

Which of the following is true regarding the pragmatic nationalist view of FDI?

One aspect of pragmatic nationalism is the tendency to aggressively court FDI believed to be in the national interest by, for example, offering subsidies to foreign MNEs in the form of tax breaks or grants.

Which of the following is one of the limitations of exporting that leads companies to prefer FDI over exporting?

The presence or threat of trade barriers

In the balance of payments, the _____ account records transactions involving the export and import of goods and services.

current

When a country is importing more goods and services than it is exporting, it is incurring a(n):

current account deficit.

FDI is risky because of the problems associated with:

doing business in a different culture where the rules of the game may be very different.

As an incentive to encourage domestic firms to undertake FDI, many countries have:

eliminated double taxation of foreign income.

Direct effects of FDI on employment in the host country arise when a foreign MNE:

employs a number of host country citizens.

Many services have to be produced where they are sold; hence _____ is not an option.

exporting

Economists refer to knowledge "spillovers" that occur when companies in the same industry are located in the same area as:

externalities.

Silicon Valley in California is the world center for the computer and semiconductor industry and has many of the world's major computer and semiconductor companies located close to each other, thus offering the location-specific advantage of:

externalities.

The _____ of foreign direct investment refers to the amount of FDI undertaken over a given period (normally a year).

flow

According to the U.S. Department of Commerce, in the United States _____ occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity.

foreign direct investment

The _____ view argues that international production should be distributed among countries according to the theory of comparative advantage.

free market

A firm becomes a(n) _____, once it undertakes FDI.

multinational enterprise

To encourage inward FDI, it is increasingly common for governments to:

offer tax concessions to firms that invest in their countries.

In the case of developing nations, about _____ of FDI is in the form of cross-border mergers and acquisitions.

one-third

The tendency to aggressively court FDI believed to be in the national interest of a country is an aspect of:

pragmatic nationalism.

Foreign managers trained in the latest management techniques can often help to improve the efficiency of operations in the host country, whether those operations are acquired or greenfield developments. This benefit of FDI falls into the category of _____.

resource transfer effects

The strategic behavior theory:

seeks to explain the patterns of FDI flows based on the idea that FDI flows are a reflection of strategic rivalry between firms in the global marketplace.

According to the radical view of FDI, multinational enterprises (MNEs) that already exist in a country:

should be immediately nationalized.

The most important concerns regarding the costs of FDI for the home-country center on:

the balance-of-payments and employment effects of outward FDI.

A firm is most likely to favor foreign direct investment over exporting when:

the firm wishes to maintain control over its operations and business strategy.

Mergers and acquisitions differ from greenfield investments in that:

the percentage of mergers and acquisitions is lower than greenfield investments in developing nations.

The United States has been an attractive target for FDI partly because of its:

the resource-transfer effect, the employment effect, and the balance-of-payments effect.

The main benefits of inward FDI for a host country arise from:

the resource-transfer effect, the employment effect, and the balance-of-payments effect.